Whether you’re speaking with Europe’s largest money manager, Australia’s giant pension funds, or a cash-rich insurer in Japan, there’s a resounding message you’ll hear when it comes to US Treasuries: They are still hard to beat.
Four months since incoming Vice President JD Vance said he was concerned Treasuries face a possible “death spiral” if bond vigilantes seek to drive up yields, firms including Legal & General Investment Management and Amundi SA say they are willing to give the new administration the benefit of the doubt.
“On the risk of a ‘death spiral,’ any bond market can become caught in a cycle of mutually reinforcing higher yields and higher debt projections,” said Chris Jeffery, head of macro strategy, asset management at Legal & General Investment, the UK’s biggest asset manager. But, “the incoming Treasury Secretary has talked about aiming for a 3% deficit in 2028. Bond investors have no reason to go on strike if the Federal government adopts such aspirations.
Yields on 10-year notes fell 14 basis points to 4.65% on Wednesday in response to benign US inflation data, the first drop in nine days. “In our central scenario, we anticipate the adjustment in US Treasury yields to proceed in an orderly fashion. However, the probability of a more disruptive adjustment, while still small, has increased in our view,” she said.
“US bonds appear more attractive at these levels, as rising yields will ultimately weigh on growth prospects or risky asset performance and the bar for hiking rates remains very high,” she said. “But the market will certainly remain cautious until we have more clarity on Trump’s agenda.”The budget deficit burgeoned to $1.83 trillion for the fiscal year ending September, according to the latest data published in October.
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